A jury
found that appellant Zurich American Insurance Company
("Zurich") breached employment agreements with
appellee James Walsh when it substantially reduced his
incentive pay for a lucrative deal -- the largest of its type
in the company's history -- and did not pay incentive on
another deal.[1] Walsh was awarded double damages and
attorney's fees, totaling nearly $2.4 million, based on
findings that Zurich willfully and without good cause
withheld the compensation owed. On appeal, Zurich asserts
that the evidence failed to show contractual breaches, let
alone willful ones. Hence, the company argues, the district
court erred in denying its motion for judgment as a matter of
law on Walsh's contract and wage claims. Zurich
alternatively argues that the district court committed legal
error by instructing the jury to disregard contract
provisions that gave the company discretion to limit
incentive pay.

Having
carefully reviewed the record and pertinent caselaw, we
reject Zurich's contention that it was entitled to
judgment as a matter of law on the breach-of-contract and
wage claims. We also uphold the jury's breach and
willfulness findings stemming from Zurich's withholding
of incentive compensation for a deal made with Great American
Insurance Company ("GAIC"). However, we agree that
the district court erroneously concluded that, if Walsh had
an enforceable incentive plan when the unprecedented deal was
struck with Automobile Protection Corp. ("APCO"),
Zurich lacked discretion as a matter of law to change
Walsh's incentive formula for that deal. Rather than
telling the jury to disregard the contractual discretion
provisions applicable to that deal, the court should have
instructed the jury to determine whether Zurich's
exercise of discretion satisfied the implied contractual
obligation of good faith and fair dealing.

We
therefore vacate the district court's judgment insofar as
it incorporates the jury's verdict on the APCO deal,
affirm the judgment with respect to the GAIC deal, and remand
for further proceedings.

I.

A.
Factual Background

Walsh's
dispute with Zurich centers on two compensation plans that
awarded him incentive pay based on certain types of new
business brought into the company. We sketch the facts as the
jury could have found them, drawing all reasonable inferences
in the plaintiff's favor. See, e.g.,
Butynski v. Springfield Terminal Ry. Co., 592 F.3d
272, 274 (1st Cir. 2010).

Walsh
was hired by Zurich in 1996 as a finance and insurance
("F&I") regional administrator responsible for
sales in Maine and New Hampshire, and he was promoted in 1999
to regional sales manager. Walsh focused on selling various
types of coverage to car dealers, including vehicle service
contracts, credit insurance, and tire and wheel coverage. In
early 2007, Walsh approached his superiors, Bill Stoothoff
and Dennis Kane, seeking increased responsibility and the
potential for salary growth within the company. Told that
nothing was currently available, Walsh looked elsewhere. He
received an offer from GMAC in Chicago that included a
guaranteed salary of $350, 000 over eighteen months, a $20,
000 signing bonus, and a relocation package.

Within
an hour after giving Zurich notice of his decision to leave
the company, Walsh received a phone call from Kane,
Zurich's vice president of direct markets, who asked him
to consider staying in a new, soon-to-be-created position. In
subsequent discussions, Stoothoff, Zurich's vice
president of F&I, offered Walsh the opportunity to manage
a new market for Zurich, the "alternative distribution
channel" -- ADC -- in which the
company, instead of selling service
contracts and other auto-related insurance only through car
dealers, would sell their products more broadly, e.g.,
selling service contracts through telemarketing and credit
unions, equipment coverage to the original manufacturers, and
contractual liability policies to third party administrators
of service contracts.

Walsh
advised Stoothoff of his three requirements for staying at
Zurich: (1) a job description that would allow him to grow,
with unlimited potential, (2) an annual salary of $250, 000
for the next eighteen months, and (3) "an incentive plan
that allows me to make money and grow and do what I need to
do." Zurich agreed to meet those terms. In October 2007,
Walsh, Stoothoff and Kane signed a "Supplemental Pay
Agreement" providing Walsh with a monthly supplement of
$13, 246.63, payable through March 2009, in addition to his
$91, 000 base salary -- a total of roughly $250, 000
annually. The supplemental payments, which were "in lieu
of any incentives earned, " were designed to meet
Walsh's salary demand until the new business he was
expected to generate would produce incentive pay sufficient
to support a comparable, or higher, salary.

The
October 2007 agreement did not specify the incentive
arrangement that would go into effect in April 2009, and the
company began discussing the details of Walsh's incentive
plan the following summer. By mid-August 2008, Walsh,
Stoothoff and Kane had settled on a target of $8 million for
the new ADC business in 2009, and they discussed an incentive
formula that would result in a total 2009 salary of about
$250, 000 at the midpoint, with a low of $183, 000 and a high
of $292, 000.[2] By that time, Walsh's base salary had
increased to $135, 000, and his supplemental payments had
decreased ($9, 583.35 monthly), with his total annual salary
still set to be roughly $250, 000 until the start of the
incentive plan in April 2009.

Through
a series of meetings and emails, Walsh, Stoothoff, Kane, and
Diane Eldridge, a Zurich compensation consultant, reached
consensus on the plan described above, including a revision
requested by Walsh in the description of the ADC incentive.
Following a meeting on August 27, 2008, Walsh was
"satisfied that my plan was done. . . . As far as
I'm concerned, my boss [Stoothoff] and his boss [Kane]
told me that this is your plan." Although Walsh
acknowledged that he never saw anything in writing confirming
that the plan was "final, " and the August 2008
plan was never entered into Zurich's finance system,
Walsh viewed the "backroom HR or accounting"
procedures as irrelevant to the plan's completion.
Stoothoff, who had been asked to complete Walsh's
incentive plan before he left Zurich at the end of August
2008, also believed that he had accomplished that task.

The
plan on its face covered the entire 2009 calendar year, but
it was superseded through March by the Supplemental Pay
Agreement that had been executed in October 2007. Hence,
Walsh would first be eligible to receive incentive payments
under the August 2008 Plan for premiums received by Zurich
after April 1, 2009. In addition to a chart that specified
variable percentages for Walsh's ADC incentive
"based on year to date performance against prorated
production and profitability goals, "[3] the August 2008
Plan contained the following "CONDITIONS":

1. The PLAN is effective January 1, 2009. INCENTIVE under the
PLAN shall be solely within the discretion of the Executive
Vice President of the COMPANY and is subject to
interpretation by him / her. The PLAN is subject to
cancellation by the Executive Vice President at any time.

. . . .

7. Management of the COMPANY reserves the right to limit
INCENTIVE in unique situations.[4]

Walsh
testified that these provisions giving Zurich -- and
specifically, Kane, the executive vice president -- the
discretion to cancel or limit his incentive pay,
"didn't mean anything to [him], " because such
provisions had "never been enforced."

In
September 2008, Walsh contacted representatives of APCO to
discuss selling Zurich's new alternative distribution
products. The discussions proved fruitful and, in December
2008, Walsh closed a deal with APCO likely to produce an
amount of premiums in 2009 that far surpassed even the
high-end projection in the compensation models Zurich had
prepared for Walsh. Immediately after the contract signing in
a Georgia hotel, as they rode an elevator together, Kane told
Walsh that he would make a lot of money on the deal. Under
the 2008 Plan, Walsh would have been entitled to ADC
incentive pay of nearly $870, 000 in 2009. That plan,
however, was not implemented. Rather, in January 2009, Kane
informed Walsh that he would not allow this amount of ADC
incentive, and that a new incentive arrangement needed to be
developed.

Walsh
initially protested any change, telling Kane that he was
shocked by the refusal to adhere to the incentive program
they had worked out in August 2008. Within a few days,
however, concluding that he had no choice but to accept a
change or leave the company, Walsh acquiesced to Kane's
request that he recommend an alternative plan that Walsh
would consider fair. Walsh's subsequent proposal provided
for a base salary of $250, 000 for the duration of the APCO
relationship, plus incentives, but Kane responded by email
that the salary amount "won't work" because
"no one is on a 250k salary" other than the
company's top executive. They scheduled a phone
conference for later in the week.

Walsh
testified that he started that call, on January 30, by again
expressing his dissatisfaction with the change in his
compensation package, but Kane nonetheless "immediately
rolled into, this is how we're going to pay you going
forward." Kane then told Walsh that his compensation for
2009 would consist of a continued guarantee of $250, 000 in
annual income (as Walsh had been promised in October 2007),
accomplished through base salary and an extension of the
supplemental pay agreement that was due to expire in April
2009. In addition, the new incentive plan -- the
"February 2009 Plan" -- would entitle Walsh to $1,
000 for each $1 million of ADC premium paid monthly. On
February 19, Eldridge reported to Walsh that Kane had
formally approved that plan, with minor revisions as Walsh
and Eldridge had discussed, and that she would be uploading
it into Zurich's compensation database.

Pursuant
to the February 2009 Plan, Walsh's ADC incentive in 2009
for the APCO deal -- $77, 000 -- was less than one-tenth of
the incentive he would have earned under the August 2008
Plan. Nonetheless, his total compensation for 2009 reached
$398, 000, which consisted of base salary, supplemental
payments, and incentives.

Although
the February 2009 Plan technically covered only calendar year
2009, no new plan was put into effect for 2010, and Walsh
continued to operate under the February 2009 Plan. In the
late summer and early fall of 2010, another dispute about
incentive pay arose when Zurich refused to pay Walsh $101,
000 based on new business with GAIC. Although the GAIC
transaction was booked by Zurich's accounting department
as ADC income -- for which Walsh would be entitled to
incentive pay -- the company maintained that the deal was
unique and did not in fact fit within the ADC category.
Accordingly, in mid-October 2010, Zurich executives moved to
amend Walsh's still-operative February 2009 Plan to
eliminate his entitlement to the $101, 000 incentive.

By that
time, the relationship between Walsh and Zurich had
deteriorated even further. Kane had left Zurich in early
2010, and Walsh's new boss, Tina Mallie, told him in June
2010 that his future travel to meet with customers was being
restricted. In conversations with Mallie in September, and
with another new boss, Kathi Ingham, in October, Walsh
learned that he would no longer be responsible for
reinsurance business, which had provided a substantial
portion of his incentive pay. On October 29, he sent Ingham
an email advising that he would be leaving Zurich in thirty
days. He was terminated later that day.

B.
Procedural Background

In
January 2012, Walsh filed a complaint against Zurich in New
Hampshire state court. Seeking more than $14 million in
damages, he alleged breach of contract, breach of the implied
covenant of good faith and fair dealing, wrongful discharge,
and willful violation of New Hampshire's wage and hour
law. He claimed that Zurich owed him additional APCO
incentive, as promised in the August 2008 Plan, and GAIC
incentive as provided by the February 2009 Plan. The case was
removed to federal court based on diversity jurisdiction, and
a trial took place before a jury.

During
the trial, the court granted Zurich's motion for judgment
as a matter of law on the wrongful discharge claim,
[5] but
it otherwise denied the company's motions for judgment as
a matter of law both at the close of plaintiff's case and
at the close of all evidence. The court rejected Zurich's
contention that Walsh did not produce sufficient evidence to
establish that the August 2008 Plan was a binding agreement
or that he was entitled to incentive on the GAIC deal. The
court also decided not to instruct the jury on the implied
covenant claim, concluding that the contractual good faith
issue was subsumed within the breach claim. Specifically with
respect to the APCO deal, the court ruled that, if the jury
found that the August 2008 Plan was not an enforceable
contract, there would be no basis for a claim that the
company had breached an implied contractual covenant.
Conversely, the court held, if the jury found that the August
2008 Plan was a binding agreement, Zurich could not have had
a good faith belief that the Plan's discretion provisions
permitted it to retroactively modify Walsh's compensation
for the APCO deal via the February 2009 Plan.

The
jury found in favor of Walsh on the claims for breach of
contract and willful violation of New Hampshire wage law, the
latter finding providing the basis for doubling the
contractual damages. See N.H. Rev. Stat. Ann. §
275:44(IV).[6] The court subsequently denied Zurich's
post-trial motion for judgment as a matter of law on those
claims, and it granted Walsh's motion for attorney's
fees and expenses. The monetary awards, before doubling, were
$791, 353 on the APCO deal and $101, 000 on the GAIC deal.
The parties stipulated to an award of $595, 000 in
attorney's fees and $9, 171.52 in other legal expenses.

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